Intercontinental Exchange Inc.

Hello, everyone, and welcome to the ICE First Quarter 2024 Earnings Conference Call and Webcast. My name is Emily, and I'll be facilitating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do so by pressing Start, followed by the number 1 on your telephone keypads. I will now hand over to Katia Gonzalez, Manager of ICE's Investor Relations. Please go ahead.

Good morning. ICE's first quarter 2024 earnings release and presentation can be found in the investor section of ICE.com. These items will be archived, and our code will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions, and uncertainties. For our description of the risks that could cause our results to differ materially from those described in forward-looking statements, Please refer to our 2023 Form 10-K, 2024 First Quarter Form 10-Q, and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. You'll find a reconciliation to the equivalent GAAP terms in the earnings materials. When used on this call, net revenue refers to revenue net of transaction-based expenses, and adjusted earnings refers to adjusted diluted earnings per share. Throughout this presentation, unless otherwise indicated, references to revenue growth are on a constant currency basis. Please see the explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items. With us on the call today are Jeff Sprecher, Chair and CEO, Warren Gardner, Chief Financial Officer, Ben Jackson, President, Lynn Martin, President of the NYSE, and Chris Edmonds, President of Fixed Income and Data Services. I'll now turn the call over to Warren.

Thanks, Katya. Good morning, everyone, and thank you for joining us today. I'll begin on slide four with a summary of our strong first quarter results. First quarter net revenues totaled a record $2.3 billion, and pro forma for the acquisition of Black Knight, increased by 5% versus last year. First quarter adjusted operating expenses totaled $930 million. At the low end of our guidance range, driven by an acceleration of planned expense synergies and a few one-time benefits within compensation costs. Moving to the balance of the year, we expect second quarter adjusted operating expenses to be in the range of $945 million to $955 million, with a sequential increase driven in part by a full quarter of merit increases across the organization, planned investments in the modernization of MSP, and higher DNA as recent revenue-related data center investments go live. In addition, and in part due to synergies being realized sooner than previously expected, we are lowering our full-year expense guidance to $3.79 billion to $3.82 billion. This strong first quarter performance helps to drive record adjusted operating income of $1.4 billion, up 8% year-over-year on a pro forma basis, and record earnings per share of $1.48. First quarter free cash flow totals $877 million, enabling us to reduce debt outstanding by roughly $600 million in the first quarter. Since we completed our acquisition of Black Knight in September, we've reduced debt by roughly $2 billion. And as a result, adjusted leverage ended the first quarter approximately 3.9 times pro forma EBITDA, with first quarter interest expense down $10 million from the fourth quarter. Now let's move to slide five, where I'll provide an overview of the performance of our exchange segments. First quarter net revenues totaled a record $1.2 billion, up 11% year over year. Record transaction revenues of $866 million were up 16%, in part driven by a 12% increase in our interest rate business and record energy revenues, which grew 32% year over year. This strong performance included a 28% increase in our oil complex, 42% growth in global natural gas revenues, driven by another record-setting quarter for TTS, and 26% growth in our environmental business. In addition, as of the end of April, open interest is up 23% year-over-year, including 22% growth in our global commodities and 25% growth in our energy markets. Shifting to recurring revenues, which include our exchange data services and our NYC listings business, revenue totaled $357 million in the first quarter. Similar to last quarter, Growth in the number of customers consuming our global energy environmental data is partially offset by the rolling off of initial listing fees related to the strong IPO market in 2021 and lower exchange data revenue at the NYSE. It's worth noting that the IPO market has shown signs of improvement so far in 2024, with the NYSE capturing nearly 70% of total proceeds raised and welcoming six of the top seven IPOs year-to-date, despite more than 50% of new listings not meeting our gold standard of qualification criteria. Turning now to slide six, I'll discuss our fixed income and data services segment. First quarter revenues totaled a record $568 million. Transaction revenues of $119 million were driven by growth in corporate bond trading, which was in part driven by strong growth within our institutional channels. This was offset by lower treasury and CD volumes as well as lower levels of CDS clearing activity. Record recurring revenues totaled $449 million and grew by 4% year over year. In our fixed income and data and analytics business, record first quarter revenues of $288 million increased by 4%. Growth was once again driven by improving trends in our PRD business and another quarter of double digit growth in our index business. Importantly, Fixed income data and analytics ASB, or annual subscription value, improved from the 2% range experienced through much of 2023 to 4% exiting the first quarter, as we continue to see customer re-engagement and investment across the fixed income ecosystem. Other data and network services grew 4% in the first quarter, driven by our fees business and continued strength in our oil and gas desktop solutions, both of which grew double digits year over year. Importantly, Demand for our connectivity solutions remains strong, with a backlog of signatures related to our ICE global network offering expected to come online and into both ASV and revenue in early July following the build-out of additional data center capacity. As a result, we expect second quarter year-over-year growth in overall recurring revenue to be similar to the first quarter, with year-over-year growth improving in the second half driven by continued strong trends across fixed income data and analytics, and an acceleration in growth in our other data and network services businesses. Please flip to slide seven, where I will discuss the results in our mortgage technology segment. Please note that my comments are on a pro forma basis. ICE mortgage technology revenues totaled $499 million in the first quarter. Recurring revenues totaled $390 billion. As we noted last quarter, recurring revenues were impacted by both industry consolidation and continued pressure on renewals within our origination technology business. It's worth noting that while current macro conditions are putting pressure on minimums of renewal and thus our recurring revenues, customers are overwhelmingly remaining on our platform. And while yet to manifest in our results, lower minimums upon renewal are paired with a higher price per transaction, a dynamic that will provide an incremental tailwind when industry volumes normalize. Said differently, total contract value in a normal market is on average increasing upon renewal. Transaction revenues sold $109 million in the first quarter. While closed loans increased slightly, this was offset by lower professional services fees and lower default management revenues within our servicing business. Importantly, as I previously indicated, we have realized expense synergies faster than originally anticipated, which, when coupled with a relatively stable top line on a year-over-year basis, It's helped to drive an 8% increase in segment operating income. Looking to the full year, and after factoring in the dramatic shift in interest rate expectations for 2024 relative to just three months ago, we now expect total revenue growth in our mortgage technology business to be flat to down in the low single-digit range, with revenues unlikely to improve materially from the first quarter levels until the second half. The high end of the range is underpinned by a flat to modest improvement in industry origination volumes. while the lower end of the range anticipates a more conservative decline in the mid to high single-digit range relative to 2023. Despite these macro pressures, we continue to invest in product development and enhancement. We continue to expand our existing networks, and we are executing on our synergy targets, all which further position our platform to realize accelerating growth when market conditions normalize. In summary, we delivered another very strong start to the year. We once again delivered strong revenue, operating income, free cash flow, and adjusted earnings for share growth. And we continue to invest across our business to meet both the needs of our customers and to position our business to continue to deliver consistent and compounding growth for our stockholders into the future. I'll be happy to take your questions during Q&A, but for now, I'll hand it over to Ben.